Monday, November 9, 2009

Bust Them and Regulate Them!!!

More than a year has gone by since Congress passed the $700 billion bailout of Wall Street.

Greedy, reckless bankers are responsible for the biggest economic collapse since the Great Depression. They want taxpayers to be on the hook if they screw us again.

This is why, Senator Sanders is announcing exclusively through Senator Sanders Unfiltered new legislation that would effectively break up the banks so it never happens again.

If a bank is too big to fail, shouldn't it also be too big to exist?

WATCH:

Senator Bernie Sanders (D-VT) believes that in order to prevent another massive bailout the banks that are "too large to fail" must be broken up which would break apart the concentration of ownership and ultimately lead to more competition.

The right idea is to break up the giant banks. I don't often agree with Alan Greenspan but he was right when he said last week that "[i]f they're too big to fail, they're too big." Greenspan noted that the government broke up Standard Oil in 1911, and what happened? "The individual parts became more valuable than the whole. Maybe that's what we need to do." (Historic footnote: Had Greenspan not supported in 1999 Congress's repeal of the Glass Stagall Act, which separated investment from commercial banking, we wouldn't be in the soup we're in to begin with.)

The Glass-Steagall Act was passed by Congress in 1933. It was enacted during the Depression and prohibited commercial banks from collaborating with full-service brokerage firms or participating in investment banking activities. In 1999, the act was repealed by the Gramm-Leach-Bliley Act and signed into law by President Bill Clinton.

The Gramm-Leach-Bliley Act allowed commercial banks, investment banks, securities firms and insurance companies to consolidate. And we should all now know that this consolidation and lack of regulation led to the problems we have today with banks getting "too big to fail."

If a lesson is too be learned from all this, then Congress would enact a new Glass-Steagall-Act.

Former Fed Chair Paul Volcker, whose only problem is he's much too tall, last week told the New York Times he'd like to see the restoration of the Glass-Steagall Act provisions that would separate the financial giants' deposit-taking activities from their investment and trading businesses. If this separation went into effect, JPMorgan Chase would have to give up the trading operations acquired from Bear Stearns. Bank of America and Merrill Lynch would go back to being separate companies. And Goldman Sachs could no longer be a bank holding company.

According to Reich, the Obama Administration has other ideas.

But the Obama Administration doesn't agree with either Greenspan or Volcker. While it says it doesn't want another bank bailout, its solution to the "too big to fail" problem doesn't go nearly far enough. In fact, it doesn't really go anywhere. The Administration would wait until a giant bank was in danger of failing and then put it into a process akin to bankruptcy. The bank's assets would be sold off to pay its creditors, and its shareholders would likely walk off with nothing. The Treasury would determine when such a "resolution" process was needed, and appoint a receiver, such as the FDIC, to wind down the bank's operations.

What is the solution?

Whether it's using the antitrust laws or enacting a new Glass-Steagall Act, the Wall Street giants should be split up -- and soon.